Thematic Report

The Komodo – On the ground in Indonesia

by Felicia Tjiasaka / May 22, 2019


OVO, Go-Jek and Traveloka are three early adopters of the online credit pay-later model in Indonesia. Registration is simple and easily approved (less than an hour). Credit limits range from Rp10k-50m/user with average 5% interest rate/month, which is twice as high as banks (2-3%) but half of P2P lending (10-30%). As more start-ups innovate to increase penetration of the ecosystem, financial inclusion will be propelled forward. This carries the risk of higher debt burden given the propensity for consumers to spend more.

Start-ups venture into “pay later” model
Fintech payment company OVO introduced its online credit service, OVO PayLater, in May this year, following two Indo unicorns Go-Jek and Traveloka which launched theirs in 2H18. We believe this is an effort to increase transaction value per user and convert more purchases into digital payments.

How does the model work in Indonesia?
OVO, Go-Jek and Traveloka opt to leverage their P2P lending subsidiary or partner, to provide credit instead of using their own balance sheets. Registration is simple and fast, with approval notification of less than an hour. Some providers require their app to be used for six months before a person can register for the service.

Closing the interest-rate gap between banks and P2P lenders
Currently, purchases with PayLater are limited to certain services within the ecosystem and credit limits range between Rp10k-50m/user. Interest charged is an average 5% per month for each transaction, which is twice as high as a bank’s monthly credit card rate (2-3%), but half that of P2P monthly lending rates (>10-30%).

Financial inclusion through technology
With more start-ups innovating to increase penetration of the ecosystem, financial inclusion can accelerate. Risk to this growing trend is that people spend more than their purchasing power and needs, which may lead to a future debt burden.